Tariff “Policy Shock” Is Real and Destructive

black concrete biulding

The pre-pandemic trade wars finally have a price tag for American agriculture: $27 billion.

That’s how much export income we lost from the middle of 2018 to the end of 2019, thanks to retaliatory tariffs placed on U.S. farm products, according to a new report from the Economic Research Service, a component of the Department of Agriculture focused on conducting high-quality, objective economic research to inform public and private decision making.

In the lingo of economists—and a term used by the authors of the ERS study—this is called a “policy shock”: a change in government policy that has a profound economic impact.

It certainly jolted my farm in Iowa. During this period, the value of my corn, soybeans, and hogs dropped by about 25 percent in three months.

That’s bad news no matter when it happens, but this setback could not have come at a worse time. It struck just before the outbreak of COVID-19, which delivered its own big shock to the global economy.

The whole episode provides another reminder that nobody wins a trade war—and when nations wage them, farmers, agriculture, and the economy will suffer. And ultimately, consumers lose as well.

The current problem began in 2018, when the United States slapped a series of tariffs on imports of aluminum and steel. Although done in the name of national security, the decision to keep these products out of the county was pure protectionism—an effort to shore up a politically favored industry, without regard for how it would affect other sectors of the economy.

This led to higher prices for consumers, who paid hundreds and possible thousands of dollars more per year for basic goods that continues today.

Farmers were hit even harder because we became the targets of retaliatory tariffs. Canada, China, the European Union, India, Mexico, and Turkey imposed new taxes on U.S. agricultural goods. The prices of some of our exports rose by as much as 140 percent—a level that made them unaffordable for consumers in these markets, which was exactly the point.

gray plastic cups on wooden tableMany of us believed that tariffs on aluminum and steel were a bad idea and spoke against them because we knew they would increase the cost of the machinery we need to do our work.

None of that mattered. Our erstwhile trading partners took aim at us anyway. They thought that if they inflicted severe economic pain on American farmers whose livelihood depends on exports, the resulting “policy shock” would create political pressure to withdraw the aluminum and steel tariffs.

It didn’t work out that way. Instead of repealing the tariffs, the federal government decided to reimburse us for the losses we suffered because of the retaliatory tariffs.

Farmers don’t want aid. We want trade, in a system that promotes the free flow of goods and services across borders.

China was responsible for the vast majority of the retaliatory tariffs. It accounted for about 95 percent of the $27 billion that the agricultural industry lost.

Confronting China may be a worthy cause, but it requires sophisticated acts of diplomacy that bring nations together. The Biden administration would be wise to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership  (CPTPP), a coalition of Pacific Rim nations that seek to promote economic cooperation and slow down China’s growing strength.

President Trump’s decision to quit the previously negotiated Trans-Pacific Partnership (TPP) was one of the worst moves of his years in office—and I say this as a voter who supported many of his goals.

What’s more, the United States can’t hope to prevail against China in a trade dispute without our allies, including the help of Brazil, a farm-powered country that is otherwise in a position to fill our market share.

Building trade relationships is hard, and it involves concrete factors such as infrastructure as well as intangible ones such as trust. It can take decades to develop, but only a few tariffs to tear down.

And now, at least, we know how a particular act of destructive protectionism has hurt American agriculture: $27 billion that we’ll never see again.

Tim Burrack

Tim Burrack

Tim grows corn, seed corn, soybeans and produces pork. Has been very involved with Mississippi River lock improvements and has traveled to Brazil to research their river, rail and road infrastructure changes. Tim volunteers as a board member for the Global Farmer Network and is currently serving as Vice Chairman.

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